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California’s Proposition 15 Would Reform Prop 13: The Good, the Bad and the Ugly

Prop 15 called the Schools and Communities First initiative is on the ballot in California. If it is approved by voters, California’s problematic anti-tax Prop 13, which has greatly harmed funding for public education, will be partially reformed and result in raising as much as $11.5 billion a year for schools and needed social services.

Under Prop 13, passed in 1978, property taxes are limited to 1% of the adjusted value of the property starting with its purchase price. The adjusted value can be increased by no more than 2% each year even if the value of the property has skyrocketed. The actual property taxes paid may be more than 1% of the adjusted value to pay for local measures approved by voters.

Prop 13 provides great stability for homeowners, some of whom, previous to its passage, could not withstand the increases in their property taxes, especially if they fell on hard times or had fixed incomes. They might have to sell their homes because they could not afford to pay the property taxes on it.

The tax limiting features of Prop 13 have largely favored big business especially those that have held onto their property for many years.

If passed, Prop 15 will raise property taxes on commercial and industrial property worth over $3 million by having the 1% tax based on the current market value of the property.

For example, the property tax on San Francisco’s Transamerica pyramid building for 2019 was $3.085 million rising to $3.194 million for 2020. Reports indicate that this building has recently been sold for around $700 million. That should result in property taxes of approximately $8.4 million, an increase of over $5 million. Under Prop 15, whether or not the property is sold, the tax would be the estimated $8.4 million.[1]

People may have good reasons to vote for Prop 15 as a long overdue needed reform. However, it has some major problems.

1. More revenue is desperately needed now to pay for social needs, but the money resulting from this reform passing won’t be forthcoming until at least 2022.

2. If Prop 15 is approved by voters, some of the money raised will go to charter schools, many of which are anti-union and are not fully accountable for their use of the taxpayer money they receive.

Money going to charters is acknowledged by former California Federation of Teachers communications director, Fred Glass, a strong supporter of Prop 15. He wrote about the proposition in a Jacobin Magazine article with the title “California’s Proposition 15 Ballot Measure is About Rolling Back Neoliberalism.” That title is a head-scratcher given that charters are a part of the neoliberal agenda.

3. The state issued voter pamphlet indicates that an expensive bureaucracy will be created to administer Prop 15 costing “several hundred million dollars per year…to pay for their [counties] costs of carrying out the measure.”

The market value of business property subject to the increased tax under Prop 15 will need to be reassessed, presumably, every year. Adding to the costs of administering Prop 15 will probably be big business mobilizing their lawyers to dispute the reassessed value. The reassessment and legal battles will squander much of the money raised by the tax.

Any higher property taxes paid by businesses will be partially subsidized by the government since businesses will be able to deduct amounts paid against their taxable income, reducing their income taxes.

4. The tax money raised as a result of Prop 15 passing may end up being used to make-up for the current massive revenue shortfalls. Revenue gained from its passage may result in little to no expansion in the funding for education and peoples’ needs, but just be used to make-up for some of the cuts now being imposed due to the pandemic.

Furthermore, there is no guarantee that the money raised will be used in ways anticipated. As Glass has clarified, the government entities can get the money, but how that money is spent will be “subject to political pressures per usual.” The money going to schools could be squandered by not being spent to increase educational opportunities, but, instead, go towards paying for consultants, hiring more administrators, being placed in a reserve fund, etc.[2]

5. Were Prop 15 to pass, the changes will not apply to residential property. Large residential landlords who own thousands of units will continue to pay property taxes based on the rules under Prop 13. Additionally, higher property taxes will not be imposed on wealthy owners of multi-million dollar mansions and other residential properties within the state. They too will continue to reap the benefits of paying low property taxes as allowed under Prop 13.

This is illustrated by the property taxes paid on a residence at 30 Presidio Terrace in San Francisco, once owned by Senator Diane Feinstein. The 8,200 square foot house was purchased under a family trust in 1985. It was owned by the senator’s daughter until sold in 2013. Property taxes paid on it in 2011 were $30,134. The property taxes paid by the new owner in 2015 came to $115,069 and, as of 2020, are $128,588. Had Feinstein’s daughter continued to own the property, her property taxes in 2020 would be about $36,000, over $90,000 less than what the current owner pays, as allowed under both Prop 13 and a voter approved Prop 15.

Opponents and Proponents of Prop 15

Those in favor of Prop 15 and those opposed to it share something in common. They both present a distorted picture.

Opponents contend Prop 15 is a threat to homeowners even though under it, homeowner taxes would continue to be assessed as they are under Prop 13.

The opponents claim that supporters of Prop 15 view it as a step towards fully dismantling Prop 13. However, in the official state ballot pamphlet in the section for making an argument against Prop 15, they do not quote a person in favor of this goal. Instead, they quote Jon Coupal, President of the Howard Jarvis Taxpayer Association, who is one of the authors of the rebuttal to the argument in favor of Prop 15.[3] He claims,

“Prop 15 is a direct threat to homeowners. Supporters of the tax hike openly admitted that this is merely the first step in completely dismantling Prop. 13…”

Quoting him in the argument against Prop. 15 would be similar to quoting Trump calling Biden a socialist and then to prove one’s contention that Biden is a socialist, Trump is quoted calling Biden a socialist.

Another argument opponents use has been put forward by a Democrat, former mayor of San Francisco, Willie Brown. He wrote an article with the long title “Changing Prop. 13 will generate a tax bill that will harm small businesses, especially those owned by minorities.”

The opposition to Prop 15 seeks to appeal to what they believe are peoples’ sympathies for small businesses and for racial justice. The do not mention that big businesses reap the lion share of benefits under Prop 13 and, presumably, are responsible for putting up much of the money to defeat Prop 15. Little public support for the defeat of Prop 15 would be likely were big business property holders the public face of the opposition to Prop 15 pleading to keep their property taxes low.

In campaign literature mailed to my house, the claim is made that the tax resulting from the passage of Prop 15 will hurt small businesses and will make “systemic racism and income inequality even worse.” Additionally, the claim is made that small businesses will be hit with rent increases, “especially minority-owned small businesses.” This questionable argument makes the flawed assumption that landlords are not already charging as much rent as possible.

The opponents do not mention how many big businesses, by paying low property taxes under Prop 13, have unfair advantages that increase inequality. They also fail to focus on how big businesses negatively impact small businesses, often driving them out of business.

What is not noted is that by having all commercial property worth less than $3 million taxed based on the rules under Prop 13 means small businesses who own their property will not face a tax hike.

Under Prop 15, businesses owning more valuable property will pay property taxes based on the property’s current market value. That would help to even the business playing field. The passage of Prop 15 would create more fairness since recently formed business acquiring property worth more than $3 million during the last decade would no longer pay relatively much greater amounts in property taxes than their rivals who have owned their property much longer.

Problems with Proponents

The campaign in favor of Prop 15, with critical support from labor unions, is also problematic.

Supporter Glass writes that “Prop 15 would finally bring progressive taxation to the state property tax code” not mentioning how it would leave most large landlords and the owners of mansions continuing to pay the low property tax amounts under Prop 13. Contrary to the proponents’ suggestion in the official voter information guide, “everyone” won’t be paying “their fair share” were Prop 15 to pass.

Glass sees the coalition in favor of Prop 15 as “the product of a long-standing progressive tax coalition in the labor community” that in 2012 put forward a proposition that raised income taxes on those with higher incomes. Left unmentioned is that the measure also included a regressive sales tax. Ridiculously, an effort had to be made to renew this higher income tax rate a few years later because it was a temporary measure. The new extension will expire in 2030 requiring yet another effort that could be avoided had the tax been made permanent.

A pamphlet mailed out by the proponents call Prop 15 “a fair and balanced reform” which might remind one of the old Fox News slogan.

Glass does point out what he calls “concerning details” recognizing that Prop 15’s passage would be only “a partial answer to the structural underfunding of the state’s public sector.” He does not add that this underfunding is largely thanks to the Democrats who have dominated the state government for a number of years. They have had numerous opportunities to address this problem, but, have instead, failed to do so. Yet, despite these failures of the Democrats, the union for which Glass worked, the California Federation of Teachers, along with other teacher unions have, for years, supported most Democrats in their election bids.[4]

Glass does acknowledge that with the pandemic and economic downturn, “Prop 15 represents a tourniquet to stanch revenue loss rather than a way forward.” The way forward clearly requires a quick move to impose heavy taxes on the super-wealthy, especially those whose wealth has increased during the pandemic.

If the proponents are really serious about addressing massive social needs, they would demand and get the Democrats who control the state to immediately pass an emergency wealth tax on billionaires and require them to pay higher income taxes. Such measures would raise a lot more needed money than Prop 15, and help to create conditions for addressing the great medical, housing, food and other needs of our increasingly vulnerable population.

1. There may be ways to carry out property purchases so there is, on paper, no change in the ownership of the property leading to higher property taxes. For example, the parties change the ownership of the company that owns the building, but not the ownership on the title of the building itself. Under Prop 15, this type of tax avoidance should no longer work as a means to avoid property taxes.

2. In 2012, a parcel tax for $79, Prop A, was passed in San Francisco. It was supposed to be used to expand education programs at City College of San Francisco. Those making decisions about the use of that money would, soon after its passage, lay off about 60 employees and cut faculty pay, failing to carry out the intentions behind Prop A. When the time came in which it had to be renewed by the voters, the faculty union leadership initially opposed its renewal.

According to a former president of my local union, passage of Prop 15 will provide City College of San Francisco $10 million per year. That does not cover the cuts and further planned cuts that have been made to the jobs of part-time instructors. For this school year alone, the administration cut the budget for these faculty by almost $10 million from what was spent in the 2018-19 school year resulting in a loss of some 250 jobs, and reductions in the schedules of many remaining part-time faculty. These cuts were planned before the pandemic.

3. Jarvis was a major leader of the Prop. 13 campaign.

4. See my articles at https://www.counterpunch.org/2018/11/19/what-can-we-expect-from-the-democrat-alternative-in-california/ and https://www.counterpunch.org/2020/05/15/simple-solution-to-californias-anticipated-54-billion-budget-deficit/

Rick Baum teaches Political Science at City College of San Francisco. He is a member of AFT 2121.

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